I move: "That the Bill be now read a Second Time."
I am pleased to introduce the Electricity Regulation (Amendment) (EirGrid) Bill for the consideration of this House. Although it is a relatively short Bill, its provisions underpin several crucial elements of the Government's energy policy and it is a key constituent of the Government's priority legislative programme.
This Bill provides for an enhanced role for EirGrid, as a strong independent State company, and underpins the development of electricity interconnection generally. The early enactment of this Bill will also facilitate the delivery to schedule of the east-west electricity interconnector.
I would like to speak first about the expanded role for EirGrid in relation to interconnectors. EirGrid plc is the fully independent transmission system operator licensed by the Commission for Energy Regulation, CER. Since it took over as the licensed operator of the electricity transmission system in 2006, EirGrid has rapidly developed into a dynamic new player in the Irish electricity market. This Bill is the first step in expanding the functions of EirGrid, in line with the Government's energy policy framework and An Agreed Programme for Government.
EirGrid's current statutory functions as transmission system operator include the operation, planning and development of the Irish electricity transmission system; the independent operation of the single electricity market in co-operation with EirGrid's Northern Ireland equivalent, SONI; and the critical task of monitoring and reporting on security of electricity supply and generation adequacy.
EirGrid's statutory remit also provides for it to develop opportunities for interconnection of the Irish transmission system with other systems, in all cases with a view to ensuring that all reasonable demands for electricity are met and having due regard for the environment.
This Bill expands the statutory functions of EirGrid in relation to interconnection. It provides that EirGrid may construct, own and operate an interconnector subject to the grant of the appropriate licence and authorisation by the regulator. EirGrid plc was established by the European Communities (Internal Market in Electricity) Regulations 2000, or SI 445 of 2000. On the advice of the Office of the Parliamentary Counsel to the Government, this Bill restates certain provisions of these regulations in primary legislation in order to provide the strongest possible underpinning for EirGrid's new role. The corresponding provisions in SI 445 will be revoked to avoid duplication. The provisions which are being restated in primary legislation relate to subsidiaries of EirGrid and borrowings and capital expenditure by EirGrid. These provisions are restated in slightly amended form and include an increase in EirGrid's borrowing limit to a total of €750 million.
The increased borrowing limit provides EirGrid with the financial leverage and scope to develop its expanded role and advance a challenging agenda. The issues of climate change and energy security are urgent and imperative priorities for Ireland, the EU and all governments worldwide. The achievement of the ambitious targets we have set for emissions reduction, renewables and energy efficiency improvement present key challenges for the electricity sector. At the same time, this sector has recently entered a new era with the establishment of the all-island single electricity market. At this time of unprecedented change, EirGrid has an increasingly important strategic role to play.
I look forward to the publication shortly of EirGrid's transmission development strategy 2025, which will be crucial in identifying how we can support the increasing penetration of renewable energy generation and address the technical challenges in terms of the development and operation of the electricity transmission system. It will underpin our continued economic, social and regional development.
I have recently announced an independent study on the transfer of the electricity transmission assets. I expect that EirGrid, as a key State stakeholder, will provide an important input into this analysis. As regards interconnection, EirGrid is currently progressing the development of the second North-South interconnector in co-operation with the Northern Ireland authorities. The publicly expressed concerns in regards to this and other essential transmission system developments, serve to underline the complexity of the task facing EirGrid in the coming years.
In this context, my Department has commissioned a study to provide the best available independent professional advice on the relative merits of constructing and operating overhead transmission lines as compared with underground cables. The study will focus on technical characteristics, reliability, operation and maintenance factors, environmental impact, possible health issues and cost of both types of electricity infrastructure. In anticipation of the enactment of this Bill, EirGrid is also currently advancing the development of the east-west electricity interconnector.
The Government attaches the highest priority to this project, which will contribute to security of supply and competitiveness as well as providing increased potential for the export of wind-generated electricity. I will expand on a few of the potential benefits to Ireland from interconnection with the UK market.
The generation adequacy report is produced annually by EirGrid and sets out the forecasts for both the supply and demand for electricity over a seven year period. The most recent report has identified a need for additional generating capacity over the next seven years to maintain security of electricity supply. East-west interconnection will afford Ireland direct and secure access to the British energy market where, I am advised, there is significant generation capacity available to enhance security of supply on this island. In addition, Britain is also developing interconnectors with mainland Europe to further contribute to security of supply and market integration.
The east-west interconnector will also enhance the competitive environment in the Irish electricity market by allowing third party access in a fair, consistent and transparent manner. This, together with the all-island single electricity market, should over time exert downward pressure on electricity prices. A significant percentage of Ireland's electricity needs are generated from gas — some 50% overall. In terms of fuel diversity, the introduction of the east-west interconnector to Ireland will be a major benefit by providing an external source of electricity which will reduce our dependency on gas-powered generation.
The east-west interconnector will help support the increased penetration of renewable generation, particularly non-dispatchable wind generation in the Irish market. Reserve supply is required to provide back-up for wind generation at times when the wind is not blowing. The east-west interconnector will provide the capacity and stability that is required and will increase the extent to which renewable generation can be accommodated on the transmission system. It will also offer potential opportunities for export of Irish wind generated electricity. Surplus power can be shared with Britain in times of high wind generation. In times of low wind generation power can be imported from Britain.
We have set ourselves ambitious targets of progressively achieving 33% of our electricity consumption from renewable sources by 2020, with 15% the target for 2010. The recently published all-island grid study shows the possibility of up to 42% of electricity being provided from renewable generation by 2020. This study identifies the east-west interconnector as a key enabler for delivering our ambitious national and EU renewables targets.
It is for these reasons that the Government has attached such a high priority to the delivery of the east-west interconnector. On foot of a Government decision in 2006 the Commission for Energy Regulation was requested to arrange the design of a competition to secure the construction of a 500 MW interconnector at the earliest possible date before 2012. The Government also decided that the interconnector will, as a national strategic asset, remain in public ownership and will be owned by EirGrid.
To oversee and ensure completion to schedule, a high-level co-ordination group has been established under the chairmanship of the CER and comprising representatives of EirGrid and my Department. I am advised that work on the project is progressing well. In recent weeks EirGrid, overseen by the CER, launched a competition for the design and construction of the interconnector. I am also advised that the contract for design and construction will be completed by the end of September this year, when the successful bidder will be announced.
EirGrid is advancing work on route selection, planning and foreshore permissions and technical specification of the interconnector. It has secured Woodland in County Meath as the connection point for the interconnector on the Irish transmission system. It has also obtained a formal connection offer from the UK national grid for a site at Deeside in Wales, which it has accepted. EirGrid has begun work on a marine survey to determine the most suitable route for the undersea cable. When this survey is completed, the final route to link the two connection points will be determined. It is, therefore, very timely that this Bill is brought forward for consideration by the Oireachtas. It provides a clear signal of the Government's support for the project. This Bill has been identified as a priority item in the Government's legislation programme and I trust I can count on the support of the Members of this House for its provisions and smooth passage.
The Bill will provide EirGrid with the legislative underpinning to advance to the next stage of the east-west interconnector project and ensure there are no delays. I am advised that the end of September 2011 is targeted for the completion of works, with the end of March 2012 targeted for the completion of commissioning and testing and the start of commercial operations.
In addition to providing for EirGrid's role regarding interconnection, the Bill also provides generally for future interconnection. The Bill makes some minor amendments to the Electricity Regulation Act 1999, to which I will refer as the 1999 Act. The Bill inserts a new subsection in the 1999 Act to provide that a person operating an interconnector without the appropriate licence will be guilty of an offence and liable to a fine or term of imprisonment. This ensures consistency with offence provisions for other licensable activities. For example, it is already an offence to supply or generate electricity without the appropriate licence.
The Bill provides further clarification of the position of interconnectors with respect to the transmission system. Section 2A of the 1999 Act provides that the cost of interconnectors would be recovered through transmission system charges. This Bill provides that those costs are only to be recovered in the case of a regulated interconnector, such as the east-west interconnector, or where the CER determines that it is in the public interest to do so.
The new provision facilitates the development of merchant interconnectors, which are privately funded and developed. Merchant interconnection projects are financed through charges for the use of the interconnector, rather than being compensated through transmission system charges. These new provisions are in line with the EU regulations in respect of merchant and regulated interconnectors.
Greater interconnection between member states is a key priority for the European Union to ensure the effective operation of the internal energy market. The importance of the east-west interconnector project has been formally recognised at European level and it has been designated a "project of European interest", which is the category of projects with the highest priority at EU level.
The east-west interconnector is included in the EU trans-European networks priority interconnection plan. The priority interconnection plan proposes specific measures for the progressive completion of critical energy infrastructure projects. As a tangible measure of support, funding totalling some €2.5 million is being made available under the EU trans-European networks programme to advance the study phases of the east-west interconnector project.
As a peripheral island nation, Ireland strongly supports the progressive development of European regional electricity markets underpinned by greater interconnection. This work is a natural progression from the development, in co-operation with the Northern Ireland authorities, of the all-island energy market and the launch of the single electricity market, SEM, in November of last year.
My Department, the CER and EirGrid, along with their UK and French counterparts, are actively working towards the development of a regional electricity market as part of the EU Commission's initiative to develop regional energy markets. This initiative will be underpinned by greater interconnection. The current focus is on the delivery of the second North-South electricity interconnector and the new east-west electricity interconnector no later than 2012.
At the Government's request, EirGrid will undertake cost-benefit analysis and feasibility planning for further interconnection with the United Kingdom and potentially with the rest of Europe in the longer term. This analysis will take account of any proposals to develop interconnection on a merchant basis.
The Bill is an important measure in the delivery of the Government's energy policy. I therefore look forward to listening carefully to the views of Members of the House and their assistance in passing it into law.